Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd.

• Decision Date: 28 August 2012
• Docket Number: No. 11–1083.,11–1083.
• Citation: 2012 Copr.L.Dec. P 30276,684 F.3d 1332,103 U.S.P.Q.2d 1337
• Parties: INTERCOLLEGIATE BROADCASTING SYSTEM, INC., a Rhode Island Non–Profit Corporation, Appellant v. COPYRIGHT ROYALTY BOARD and Library of Congress, Appellees College Broadcasters, Inc. and SoundExchange, Inc., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

684 F.3d 1332

2012 Copr.L.Dec. P 30,276

103 U.S.P.Q.2d 1337

INTERCOLLEGIATE BROADCASTING SYSTEM, INC., a Rhode Island Non–Profit Corporation, Appellant

v. COPYRIGHT ROYALTY BOARD and Library of Congress, AppelleesCollege Broadcasters, Inc. and SoundExchange, Inc., Intervenors.

No. 11–1083.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 7, 2012.

Decided July 6, 2012.

Rehearing En Banc Denied Aug. 28, 2012.

Held Unconstitutional

17 U.S.C.A. § 802(i)

On Appeal from a Final Order of the Copyright Royalty Board.

Christopher J. Wright argued the cause for appellant. With him on the briefs were Timothy J. Simeone and William Malone.

Kelsi Brown Corkran, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Tony West, Assistant U.S. Attorney General, and Scott R. McIntosh, Attorney.

Michael B. DeSanctis argued the cause for intervenor SoundExchange, Inc. in support of appellees. With him on the brief were David A. Handzo, William M. Hohengarten, and Garrett A. Levin.

Catherine R. Gellis was on the brief for intervenor College Broadcasters, Inc. in support of appellee.

Before: GARLAND and GRIFFITH, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

WILLIAMS, Senior Circuit Judge:

Intercollegiate Broadcasting, Inc. appeals a final determination of the Copyright Royalty Judges (“CRJs” or “Judges”) setting the default royalty rates and terms applicable to internet-based “webcasting” of digitally recorded music. We find we need not address Intercollegiate's argument that Congress's grant of power to the CRJs is void because the provision for judicial review gives us legislative or administrative powers that may not be vested in an Article III court. But we agree with Intercollegiate that the position of the CRJs, as currently constituted, violates the Appointments Clause, U.S. Const., art. II, § 2, cl. 2. To remedy the violation, we follow the Supreme Court's approach in Free Enterprise Fund v. Public Company Accounting Oversight Bd., ––– U.S. ––––, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010), by invalidating and severing the restrictions on the Librarian of Congress's ability to remove the CRJs. With such removal power in the Librarian's hands, we are confident that the Judges are “inferior” rather than “principal” officers, and that no constitutional problem remains. Because of the Appointments Clause violation at the time of decision, we vacate and remand the determination challenged here; accordingly we need not reach Intercollegiate's arguments regarding the merits of the rates and terms set in that determination.

* * *

Intercollegiate is an association of “noncommercial” webcasters who transmit digitally recorded music over the internet in educational environments such as high school and college campuses—a technologically updated version of “closed circuit” campus radio stations. As with traditional radio, such digital transmissions are “performances” under the Copyright Act and thus entitle the owner of a song's copyright to royalty payments. See 17 U.S.C. § 106(6). And since 1998, the act has provided a “statutory license” for webcasting—a set of provisions that encourage voluntary negotiations over licensing terms but provide, if the parties cannot agree, for proceedings before the CRJs to establish reasonable terms. See id. § 114(d)(2), (f)(2)-(3); see also id. § 112(e)(4) (similar licenses for “ephemeral recordings”).

The administrative body responsible for setting these terms has changed in name and structure over time, but the Copyright Royalty Board (the regulatory name for the collective entity composed of the CRJs and their staff, see 37 C.F.R. § 301.1) was established in its current form in 2004 and is composed of three Copyright Royalty Judges who are appointed to staggered six-year terms by the Librarian of Congress. See Copyright Royalty and Distribution Reform Act of 2004, Pub. L. No. 108–419, 118 Stat. 2341 (codified at 17 U.S.C. § 801 et seq.). When a ratemaking proceeding is initiated, the Judges are tasked with “mak[ing] determinations and adjustments of reasonable terms and rates of royalty payments,” 17 U.S.C. § 801(b)(1), where “reasonable” means payments that “most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller,” id. § 114(f)(2)(B); see also id. § 112(e)(4).

SoundExchange, Inc. (an intervenor here) is a non-profit clearinghouse for musicians' webcast royalty payments. In 2008 it initiated ratemaking proceedings before the CRJs to set the default webcasting licensing rates for the years 2011–2015. The Judges initiated proceedings and received 40 petitions to participate, mainly from webcasters. Over the next two years, SoundExchange entered voluntary settlements with almost all of the participants, leaving only two webcasting participants, Intercollegiate and one other licensee, Live365 (a commercial webcaster). (Live365 originally appealed the CRJs' determination as to commercial webcaster rates but reached a settlement with SoundExchange before the filing of opening briefs.) Intervenor College Broadcasting, Inc., an association of educational webcasters similar to Intercollegiate, participated in cooperation with SoundExchange, providing the CRJs their settlement agreement as a reference for market rates.

After reviewing the evidence and testimony from the remaining participants, the CRJs issued a final determination in which they adopted as statutory rates the royalty structure agreed to in the settlement between SoundExchange and College Broadcasting. See 76 Fed. Reg. 13,026, 13,042/1 (Mar. 9, 2011). Those terms include a $500 flat annual fee per station for both “educational” and other noncommercial webcasters whose “Aggregate Tuning Hours” stay below a monthly threshold separating them from commercial webcasters. See id. at 13,039/1, 13,040/1. The CRJs rejected Intercollegiate's proposal to establish different fee structures for “small” and “very small” noncommercial webcasters. See id. at 13,040/2–13,042/1. Intercollegiate appealed the CRJs' determination pursuant to 17 U.S.C. § 803(d)(1).

* * *

Intercollegiate first argues that all determinations made by the CRJs are void because the relevant appeal provision purports to ask Article III courts to take actions of a kind beyond their constitutional jurisdiction. Specifically, 17 U.S.C. § 803(d)(1) provides for appeals of the CRJs' determinations to the D.C. Circuit, and § 803(d)(3) states:

Section 706 of title 5 shall apply with respect to review by the court of appeals under this subsection. If the court modifies or vacates a determination of the Copyright Royalty Judges, the court may enter its own determination with respect to the amount or distribution of royalty fees and costs, and order the repayment of any excess fees, the payment of any underpaid fees, and the payment of interest pertaining respectively thereto, in accordance with its final judgment. The court may also vacate the determination of the Copyright Royalty Judges and remand the case to the Copyright Royalty Judges for further proceedings in accordance with subsection (a).

17 U.S.C. § 803(d)(3) (emphasis added). Intercollegiate claims that this provision vests us with powers unsuitable for an Article III court, citing Federal Radio Commission v. General Electric Co., 281 U.S. 464, 50 S.Ct. 389, 74 L.Ed. 969 (1930). There the Court addressed a provision vesting in the courts of the District of Columbia a power to substitute their own “determination” for that of an agency; it found the power to be legislative or administrative rather than judicial. Because the courts of the District were then legislative in character, their exercise of such a power presented no problem, but the Court regarded its review of such a legislative or administrative decision as beyond its authority under Article III. Id. at 469, 50 S.Ct. 389. As Congress clearly meant to provide an avenue for appeal, yet specified an invalid one, Intercollegiate argues, we must throw out the whole regime.

We conclude that we need not address this objection because it has no bearing on Intercollegiate's case. So far as the substance of the CRJs' decision is concerned, no party has asked us to enter our own determination, but rather to review the decision for compliance with 17 U.S.C. § 114(f)(2)(A). See Appellant's Br. 17–18 (seeking vacation and remand for lack of compliance with that provision); Appellees' Br. 43 (seeking affirmance). That challenge is evaluated under the familiar APA arbitrary and capricious standard, 5 U.S.C. § 706(2)(A), which is incorporated by direct reference in § 803(d)(3). Intercollegiate insists that § 803(d)(3) is “facially unconstitutional” and therefore brings down the whole CRJ determination process even if the defective provision is not applicable in this case. Appellant's Reply Br. 29. But as the government points out, Intercollegiate has made no attempt to satisfy the common standard for a facial constitutional challenge, Appellees' Br. 16 (citing United States v. Salerno, 481 U.S. 739, 745, 107 S.Ct. 2095, 95 L.Ed.2d 697 (1987)), or justify the non-application of that standard, or explain why the allegedly offensive language wouldn't be severable, see id. at 19–20. Intercollegiate offers nothing in reply. See Appellant's Reply Br. 29–30. We note, incidentally, that power to make our “own determination” would appear to present no problem on an issue as to which the law permitted only one option.

* * *

Intercollegiate argues that the Copyright Royalty Board as currently structured violates the Constitution's Appointments Clause, art. II, § 2, cl. 2, on two grounds: (1) the Judges' exercise of significant ratemaking authority, without any effective means of control by a superior (such as unrestricted removability), qualifies them as “principal” officers who...